Capital Investments Don’t Happen Overnight Mr. Wheeler

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.

March 3, 2015 - 20:32 — Deborah Collier

On February 26, 2015, the three Democratic commissioners at the Federal Communications Commission (FCC) made a monumental decision to regulate the Internet under Title II of the Communications Act of 1934. In other words, they thought it was a good idea to apply an 80 year-old statute intended to regulate the monopoly Bell telephone system to the most compelling and competitive communications and commercial system ever created. The decision both ignores the amazing success of the Internet under a bipartisan light regulatory touch first established during the Clinton administration and ongoing consideration in Congress of legislation to modernize the 1934 Act and the Telecommunications Act of 1996.

On top of the questionable legal basis for the decision, the commissioners demonstrated an appalling lack of understanding of how companies (regardless of industry) plan for capital investments and improvements. Unfortunately, that view is pervasive throughout the Obama administration.

In a March 3, 2015 interview on CNBC’s Squawk Box, FCC Chairman Tom Wheeler stated, “The reality is that the day after our order goes into effect, the revenues for consumer services for Internet service providers will be exactly as they were the day before.”

Of course revenues will not change from the day before the effective date to the day after. However, what has already changed is how these companies will now plan for future infrastructure investments under the new rules. As Sun-Microsystems co-founder and former CEO Scott McNealy noted on CNBC following the Wheeler interview, “It was a problem that wasn’t broken, didn’t need fixing.” McNealy further stated, “The whole concept that there’s not going to be one change in revenue the day after verses the day before – well of course not, that was the silliest statement I’ve ever heard. Let’s talk about the next 3, 5, 10, and 20 year cycle … these are huge capital investments that have to be made.”

According to U.S. Telecom, the private sector has invested more than $1.3 trillion in broadband since 1996, $690 billion of which was used to build wireline infrastructure. In 2013, private sector broadband investment reached $75 billion. While Chairman Wheeler is correct in stating that revenues won’t change overnight, the long-term effect of these restrictive regulations on capital investments will be devastating to innovation. As a result, over the next 10 to 20 years, it seems likely that U.S. companies will reduce their investment to match or drop below other countries. Eventually, America will lose its substantial global competitive edge as the Internet becomes more and more like a public utility – boring, lackluster, and uninspiring.